It may not be California just yet, but New England is growing as a center for cannabis.
In the years since Massachusetts, Rhode Island and Maine became the first states to lift restrictions on adult-use cannabis sales, cannabis seltzer startups like Hi5, Cantrip, Levia and SIP have all entered the market seeking to be weed’s answer to White Claw. For two of those brands in particular – Levia and Hi5, each owned by vertically integrated multi-state cannabis operators – this year is poised to be a critical one for growth, as the former completes its takeover by Florida-based Ayr Wellness, and the latter aims to tackle pricing while preparing to debut an innovative new product.
Levia: After Breakthrough Year, Opportunity With Ayr Awaits
Since launching in February 2021, the Massachusetts-based brand of cannabis (THC) infused flavored seltzers has been on something of a proverbial rocket ship, as it quickly emerged as one of the fastest growing brands in the category. According to BDSA data, Levia, which offers a three-SKU line of low-dose (5mg THC) sparkling waters with no sugar or calories, quickly surpassed competitors like Keef Cola and Magic Number just months after launch, and by August had surpassed Cann as the top-ranked cannabis beverage in monthly sales revenue, despite only being sold in one state. That same month, multistate cannabis operator Ayr Wellness announced it had reached an agreement to acquire the brand in a transaction valued at $60 million, positioning the brand as one of four “national power brands” within Ayr’s CPG strategy.
When reached on the phone last week, however, Levia CFO and president Matt Melander said the company was still in the process of working with regulators to finalize and approve the transaction; it had expected to be done by the end of last year, but delays and disruptions have pushed the timetable back to early February. Having navigated the labyrinth of state-level bureaucracy on his own (“Getting a cannabis business licensed is hands down the hardest professional endeavor I’ve ever been involved with” he noted with conviction), the prospect of finding a seasoned guide for future expansion seems well worth the wait.
The advantages of aligning with Ayr are obvious: along with Massachusetts, the Miami-based company also has operations in Nevada, Massachusetts, Pennsylvania, Florida, Arizona and Ohio. According to Semple, Ayr is projected to reach $718.6 million in annual revenue this year, thanks in large part to New Jersey, which is expected to bring in around $72 million in first-year revenue for the company once the state begins adult-use sales sometime in Q2.
“We always considered Levia in Massachusetts as a proof of concept that the segment could work,” Melander said. “Away from licensing, we chose to partner with a multi-state operator because they not only have access to markets and licenses and the ability to create facilities, they also have the resources to build a real strong consumer presence and marketing strategy.”
Though Levia already has several new products in the works, including an on-the-go drink additive, it won’t necessarily be the only beverage brand or product in Ayr’s portfolio, Melander acknowledged. Levia’s proprietary technology comes as part of the deal, meaning there’s potential for its use as an innovation tool for other departments. His belief in the opportunity to delight consumers with accessible, socially consumable cannabis products, a topic he’s passionate about, is the company’s guiding principle, with growth strategy to be refined around that core mission of becoming “the Coca Cola or Budweiser of the industry.”
While Melander and his co-founders plan for the future, Levia’s manufacturing facility in Georgetown, Mass. has stayed buzzing, with all current staff coming along in the transfer of ownership. Innovation has never been an issue: see the brand’s latest winter seasonal release, Pomegranate Punch, and the brand’s line of tinctures.
“We’re going to create a much more robust marketing campaign and national strategy of how we plan on bringing cannabis beverages to the mainstream. Because it’s my belief, and obviously I’m talking about my own trade, that cannabis beverages will be the form factor that breaks the stigma to the industry.”
Hi5: WIth Product Working, Cutting Prices Is Next
Having established a solid foundation in two states for its line of low-dose seltzers, Hi5 isn’t looking to shake up the uncomplicated approach that has served it well so far.
The brand, a division of multistate operator Theory Wellness, has ticked along well since launching in Massachusetts, where it is manufactured at the company’s Stoneham-based facility. Promising a faster-onset high than edibles (five minutes, per the brand name), Hi5 is sold in five flavors — Black Cherry, Pomegranate, Peach Mango, Lime and Lemon — at dispensaries in the Bay State and, as of this fall, in Maine.
According to Theory Wellness CEO Brandon Pollock, much of the brand’s success thus far is due to its simple, recognizable flavors and ability to serve as a buzzy non-alcoholic alternative to wine and cocktails. Rather than altering the product itself, reducing the product’s current price ($16 per 4-pack, before taxes) is the brand’s next priority, particularly as big markets like New York and New Jersey open their doors to adult-use cannabis.
“My view is that we really want to try to get that down to where we’re approaching maybe $1.50 a can, so we can really be at parity with light beer or a hard seltzer,” he said. “I think you can be successful with pricing now, which I think is on the higher side across the board as beverages. But right now beverages might be 2% or so of all cannabis sales. If we want to see that grow to double-digit numbers long term, I think that’s where you’re gonna want to see pricing come down.”
How will that happen? Partly through expansion of Theory’s manufacturing infrastructure. The company operates two fully automated canning facilities in Waterville, Maine and Bridgewater, Mass., where it also produces a line of infused edibles. Pollock characterized the process of setting up manufacturing infrastructure in new states as “pretty straightforward,” but acknowledged that it will take time for that approach to be felt in terms of lower prices for consumers. Even some business developments, such as access to third-party delivery platforms, have not been as big a boon as envisioned because of the attached costs.
“It’s been slower than we expected,” he said. “The industry is collectively trying to lobby for a reduction in the required amount of personnel on these vehicles – right now state law [requires] you to have two people in the car at all times you’re doing deliveries. That just really drives up the operating costs and I think hurts us in a way that it discourages delivery. It hasn’t really caught on quickly at all.”
That focus on the long-term, however, doesn’t mean the brand isn’t innovating: Hi5 is planning to launch a THC-infused energy drink later this year.
Editor’s Note: A previous version of this story referred to Levia CFO and president Matt Melander as the brand’s CEO and founder. The article has been updated.